The geopolitics of new lead technology

Thomas Reifer

The three hegemonies of the modern world-system have been
the Dutch in the seventeenth century, the British in the nineteenth century and
the hegemony of the United States in the twentieth century. Sociologists and
political scientists have carefully studied the process of hegemonic rise and
decline.Recent research by Rennstich (2001) retools Arrighi’s (1994)
formulation of the organizational evolutions that have accompanied the
emergence of larger and larger hegemons over the last six centuries. Modelski and
Thompson (1996) argued that the British successfully managed to enjoy two
“power cycles,” one in the eighteenth and another in the nineteenth centuries.
With this precedent in mind Rennstich considers the possibility that the US
might succeed itself in the twenty-first century. Rennstich’s analysis of the
organizational, cultural and political requisites of the contemporary new lead
industries – information technology and biotechnology – imply that the United
States has a large comparative advantage that will most probably lead to
another round of U.S. pre-eminence in the world-system. But important
resistance to genetically engineered products has arisen as consumers and
environmentalists worry about the unintended consequences of introducing
radically new organisms into the biosphere. This paper will examine the
agricultural biotechnology industry as a new lead industry and will consider
its possible future impact on the distribution of power in the world-system.
This will entail an examination of the loci and timing of private and publicly
funded research and development, biotechnology firms that are developing and
selling products, and the emergence of national and global policies that are
intended to regulate and test genetically engineered products. The recent
history of environmental impacts of genetically engineered products will be
reviewed, as well as the contentious literature about the supposed risks of
agricultural biotechnology. Several scenarios regarding the timing of the onset
of biotech profitability and their potential impact on US economic centrality
will be developed, and data on both the business history and the emergence of
resistance will be employed to examine the likelihood of these possible
scenarios.

(v. 6-26-02) 4026 words

To be presented at the ISA Research
Committee on Environment and Society RC24 XV ISA World Congress of Sociology, Brisbane,
Australia, July 7-13, 2002. Session 8. New technologies and the environment:
ICT and biotechnology, organized by Elim Papadakis and Ray Murphy. An
earlier version was presented at the Division of Social Science Seminar, Hong
Kong University of Science and Technology, November 15, 2001.

New
lead technologies have long been important causes of the rise and decline of
hegemonic core powers in the modern world-system. Political and military power
is sustained and facilitated by competitive advantages in the production of
highly profitable goods. Rising hegemons (or “world leaders” in the terminology
of Modelski and Thompson 1996) manage to innovate new profitable modes of trade
and production that allow them to finance political and military advantages
over other states.Thus the sequence of new lead technologies and their
distribution across potentially competing core states is an important subject
of study for understanding both the past and the future of hegemonic rise and
fall.

The
hegemonic sequence alternates between two structural situations as hegemonic
core powers rise and fall: hegemony and hegemonic rivalry.

Figure 1:
Unicentric vs. Multicentric Core

The
three hegemonies of the modern world-system have been the Dutch in the 17th
century, the British in the nineteenth century and the hegemony of the United
States in the twentieth century. Sociologists and political scientists have
studied the process of hegemonic rise and decline mainly by periodizing
hypothesized stages. Exceptions are Modelski and Thompson’s (1988) study of the
distribution of naval power capacity since the fifteenth century, and Modelski
and Thompson’s (1994) quantification of the rise of new lead industries. [1]

Recent
research by Rennstich (2001) retools Arrighi’s (1994) formulation of the
reorganizations of the institutional structures that connect finance capital
with states to facilitate the emergence of larger and larger hegemons over the
last six centuries. Modelski and Thompson (1996) argued that the British
successfully managed to enjoy two “power cycles,”[1]
one in the eighteenth and another in the nineteenth century. With this
precedent in mind Rennstich considers the possibility that the U.S. might
succeed itself in the twenty-first century. Rennstich’s analysis of the
organizational, cultural and political requisites of the contemporary new lead
industries – information technology and biotechnology – imply that the United
States has a large comparative advantage that will most probably lead to
another round of U.S. pre-eminence in the world-system.

This
paper will propose a research strategy for the examination of the biotechnology
industry as a new lead industry and will consider its likely future impact
on the distribution of power in the world-system.

Most
of the research on the international aspects of agricultural and medical
biotechnology impacts has focused on North/South issues about patenting of
genomes and genetically modified organisms and the effects of the
industrialization of agriculture on peasantries in the Third World. But there
is also a North/North aspect that has emerged with strong resistance in Japan,
the United Kingdom and Europe to genetically modified foods.

Our
research focuses upon the geopolitical aspects and consequences of the
agricultural biotechnology industry. How will this industry affect the global
distribution of economic and military power in the next decades? Will it be a
big success economically and help to facilitate another round of United States
economic hegemony, or will it be a bust and so contribute to U.S. economic
decline relative to competing world regions and states. This question comes out
of research on the role of "new lead industries” in hegemonic rise and
decline.

Our
research will time-map the world-wide loci and timing of:

·Medical and
agricultural biotechnology research and development,

·Medical and
agricultural biotechnology firms that are developing products, and

·national and global
policies that are intended to regulate and test genetically engineered
products, and to regulate medical biotechnology research and development.

The
recent history of environmental impacts of genetically engineered products will
be studied, as well as the contentious literature about the supposed risks of
agricultural biotechnology. Several scenarios regarding the timing of the onset
of biotech profitability and potential impacts on U.S. economic centrality will
be modeled. Data on biotech business history and resistance to genetically
modified foods and food inputs will be employed to examine the likelihood of
these scenarios.

New
lead industries typically follow a growth curve in which a period of innovation
and relatively slow growth is followed by a period of implementation and
adaptation and rapid growth as the technologies spread, which is later followed
by a period of saturation in which growth slows down. The logistic or S-curve
is the hypothetical form, which is only approximated in the actual records of
new lead industries in economic history. Figure 2 illustrates the important
differences in the form of the growth curves of fourteen new lead industries in
world economic history since the fourteenth century as calculated by Michael A.
Alexander (2000).

Figure 2:
New Lead Industries in the World-System

Source: Alexander (2000), P. 141.

New
lead industries are important as the bases of hegemonic rises because they have
huge spin-offs for the national economies in which they first emerge, spurring
growth far beyond the original sectors in which they appear, and because they
generate “technological rents.” Technological rents are the large profits that
return to innovators because they enjoy a monopoly over their inventions. The
first firm to invent a calculator that calculated a square root at the press of
a key was able to sell that calculator for several hundreds of dollars.
Patents, legal protections of monopolies justified by the idea that
technological innovation needs to be rewarded, can extend the period in which
technological rents may be garnered. But nearly all products eventually follow
the “product cycle” in which technological rents are reduced because competing
producers enter the market, and profits become reduced to a small percentage of
the immediate cost of production. Inputs such as labor costs, raw materials, and
transport costs become the major determinants of profitability as a production
becomes more standardize and routine (Vernon 1966, 1971).

The
ability to innovate new products and to stay at the profitable end of the
product cycle is one of the most important bases of successful core production
in the modern world-system. Products typically move to the semiperiphery or the
periphery as production becomes routinized. So the cotton textile industry was
a new lead industry in the early nineteenth century, but it spread from the
English midlands to other core states and to semiperipheral locations (such as
New England), and eventually it moved on to the periphery.Thus the product
cycle is important in the reproduction of the core/periphery hierarchy, but it
is also important in determining relative competitive advantages within the
core. Some core countries are better than others at innovation and
implementation of new lead technologies, and it is the ability to concentrate
these by means of strategic development of research and development activities,
usually including important public investments and coordination of educational
institutions and industry, that allows some core countries to do better than
others.

The
United States has had huge advantages over competing core countries since World
War II. Because the United States is a continental-sized country with a huge
“home market” that is a substantial share of the world economy, it has been
rather difficult for contenders to outcompete the U.S. because of reasons of
mere size. This said, the U.S. share of world GDP decreased from 1950 to 1992
(see Figure 3). Some of this was due to the increasing share of Japan, and some
due to increasing shares of certain countries in the semiperiphery.[1]

In
about 1992 the U.S. share began again to increase, while the East Asian crisis
led the Japanese share to decline. Some observers have attributed this to a
reemergence of U.S. economic hegemony based on successes in information
technology. Rennstich contends that the United States has cultural and social
advantages over Europe and Japan that enable its workers to adapt quickly to
technological changes and that these, combined with the huge size of the U.S.
domestic market, will serve as the basis for a new “power cycle” of U.S.
concentration of economic comparative advantage based on information and
biotechnology.

Figure 3:Core
State's Shares of World GDP, 1950-1994

But other observers have a different
interpretation of the recent trends. The reversal of the downward trend in
Figure 3 is interpreted by Giovanni Arrighi as the functional equivalent of the
“Edwardian belle epoque” that occurred during the salad days of finance
capitalism during the late nineteenth century decline of British hegemony. Many
observers have noted that the rise to centrality of finance capital has been a
key element of economic globalization in recent decades (e.g. Sassen 2001,
Henwood 1998). Arrighi (1994) points out that this shift from the centrality of
trade and production toward accumulation based on financial services is typical
of late periods in the “systemic cycles of accumulation” and signifies the
decline of the contemporary hegemon. The comparative advantage of the hegemon
in new lead industries declines as challengers rise, but the old hegemon is
able to continue to make profits because of its monetary and financial
advantages.

The reversal of the downward trend of the U.S.
share of the world economy in Figure 3 is also contemporaneous with a huge
reversal in the U.S. balance of payments. A huge inflow of foreign investment
in bonds, stocks and property beginning in the early 1990s turned the U.S. into
one of the world’s most indebted national economies and was arguably an
important contributor to the high growth rates and incredibly long stock market
boom of the 1990s. The dot.com stock bubble that burst in 2000 was a typical
example of how financial speculation can create profits by means of selling
stocks rather than be selling products that people buy and use. In such an
economy the stocks themselves become the product.

The “new economy speak” of the last decade was
typical of periods of financial speculation in which hypothetical future
earnings streams are alleged to be represented in the value of securities. But
the stock market operates according to a middle-run time horizon. Profits need
to be made within the next few years. Investments that do not pay a return
sooner than a decade hence are nearly valueless in conventional financial
calculations. This is why basic science is considered a public good that is
usually financed by governments. It is not usually reasonable to expect a financial
return soon enough for private investors, even venture capitalists, to assume
the necessary risks.

Biotechnology
as a New Lead Industry

Biotechnology has been heralded as the potential
basis for a new round of U.S. economic hegemony. In this discussion we will
need to use a distinction between medical biotechnology and agricultural
biotechnology because of the somewhat different ways in which these branches of
the application of applied biology are related to factors that may influence
the economic potential of these technologies. Agricultural biotechnology is the
application of genomics to create new crops, new sources of animal protein, and
to protect crops and domesticated animals from pests. Agricultural
biotechnology is intended to improve the human food supply by lowering the
costs of production and by improving the products. Medical biotechnology is
intended to improve human health by developing new techniques for preventing
diseases, curing ailments, producing products for transplants and improving the
genetic makeup of individuals.

An
important literature has emerged that discusses the ethical dimensions and
political implications of biotechnology (e.g. Shiva 1997; Rifkin 1998) .
Extremely fundamental issues are becoming important in public discourse, and
the governance of biotechnology research and applications will be an
increasingly central part of politics in the twenty-first century (e.g.
Fukuyama 2002). In this paper we will discuss the politics of biotechnology
only insofar as it is likely to be an important influence on the potential role
of biotechnology as a new lead industry that might function as the basis of a
new round of U.S. economic hegemony.

In
order for biotechnology to function as a new lead industry that could serve as
a basis for a new round of U.S. economic hegemony several conditions would have
to be met. Investments in biotechnology would have to produce products that can
be profitably sold, and these would need to be purchased within the United
States and in the world market. Firms producing these biotechnology products
would need to be able to obtain technological rents over a period of time long
enough to recoup the costs of research and development. And the biotechnology
industry would need to serve as a source of spin-offs for the rest of the U.S.
economy to a degree greater than in the national economies of contending core
powers.

Figure
4 illustrates our contentions about factors that will reduce the likelihood of
the biotechnology industry serving as a basis for a new round of U.S. hegemony.
We note that the huge decreases in transportation costs and communications
costs in the most recent wave of globalization have increased the rate at which
technologies and new industries can spread to competing regions. It has been
thought that the research and development costs of the biotech industry make it
difficult for new centers to emerge, and this has been alleged to be part of
the basis for the U.S. lead in biotechnology. It is true that the U.S. research
universities and publicly funded research have been important sources of both
medical and agricultural biotechnological advances. The U.S. Department of
Agriculture and federal agricultural policies played a central role in the
development of agricultural biotechnology (Kloppenburg 1988a, 1988b; Pistorius
and van Wijk1999). And the United States has taken the lead in the creation of
an international patent regime to protect “intellectual property”(the so-called
TRIPS agreement) that should, in principle, allow firms to recoup research and
development costs through technological rents.

The
allegedly high start-up costs should prevent the early emergence of
competitors, and this has been claimed to account for how biotechnology
research and development and commercialization in Europe and Japan have lagged
behind the U.S.But there have been some developments that cast doubt on these
characterizations. The Peoples’ Republic of China began a substantial
state-sponsored initiative in biotechnology in the 1980s and many important
creations of this program have been implemented in Chinese agriculture on a
huge scale, with allegedly great beneficial effects. Perhaps the large size of
semiperipheral China allows massive resources to be concentrated on targeted
research and development efforts, making this development not so surprising.
But Singapore, a city-state, has also succeeded in establishing a successful
biotechnology initiative by importing scientific talent from abroad. These
start-ups imply that entry into the biotechnology industry is not as restricted
as had been assumed, and that competition for shares of world demand for the
products of biotechnology will speed up the product cycle, making it more
difficult for particular countries, including the U.S., to garner technological
rents for very long.

Another
factor that may affect profitability of the biotechnology industry is consumer
resistance to genetically modified foods. Japanese consumers have refused to
purchase genetically modified soybeans and so Japan ceased to import these in
1999. This caused Canada to stop growing genetically modified soybeans and
several countries announced that they were also going to ban GMOs in order to
exploit the market niche created by countries that have banned GMO imports.

In
England MacDonald’s restaurants were forced to stop using genetically modified
inputs by a consumer boycott. Significant popular resistances to genetically
modified foods have emerged in Europe and parts of Asia. This could be an
important factor affecting the profitability of agricultural biotechnology.
Campaigns to raise this issue within the United States have so far not been
very successful. This may be partly due to the cultural factors that Rennstich
has mentioned as explanations for the U.S. comparative advantage. But this
could quickly change if experiments with genetically modified organisms lead to
calamities, as they are almost certain to do eventually.

Figure 4:Diffusion and
Resistance Lower the Impact of Biotechnology on U.S. Economic Comparative
Advantage

Complete testing this model is impossible because
we have no information about the future. But we can quantify trends in recent
decades and see how they seem to interact temporally and spatially with one
another. The unit of analysis for this research is the world-system as a whole,
especially those countries and transnational networks that are engaging in
medical and agricultural biotechnology research and product development, but
also important potential markets for the biotechnology products. These latter
will include studies of public opinion regarding genetically modified organisms
and public policies regarding research, product testing and regulation of the
biotech industry. Large retailers of food products have been noticeably
important players in the drama of resistance to transgenic foods, and so they
need to be studied as well.